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DECISION No. 28/2003/QD-BTC OF MARCH 14, 2003 PROMULGATING AND PUBLICIZING 05 VIETNAMESE AUDITING STANDARDS (PHASE 4)

THE MINISTER OF FINANCE

Pursuant to the Government's Decree No. 86/2002/ND-CP of November 5, 2002 defining the functions, tasks, powers and organizational structures of the ministries and ministerial-level agencies;

Pursuant to the Government's Decree No. 178/CP of October 28, 1994 on the tasks, powers and organizational apparatus of the Ministry of Finance;

Pursuant to the Government's Decree No. 07/CP of January 29, 1994 promulgating the Regulation on independent audit in the national economy;

In order to meet the requirements of renewing the economic and financial management mechanisms, raising the quality of independent audit in the national economy; to inspect and control the quality of independent audit and make healthy financial information in the national economy;

At the proposals of the directors of the Accounting Regime Department and the Office of the Ministry of Finance,

DECIDES:

Article 1.- To promulgate 05 Vietnamese auditing standards (phase 4) with the following codes and names:

1. Standard No. 220 - Quality control of auditing activities;

2. Standard No. 320 - Audit materiality;

3. Standard No. 501 - Additional audit evidences for special items and events;

4. Standard No. 560 - Events occurring after the date of closing accounting books and making financial statement;

5. Standard No. 600 - Use of other auditors' materials.

Article 2.- The Vietnamese auditing standards promulgated together with this Decision shall apply to the independent audit of financial statements. For the services of auditing other financial information and related services of audit firms, the specific provisions of each standard shall apply.

Article 3.- This Decision takes effect as from April 1, 2003.

Article 4.- Auditors and audit firms operating lawfully in Vietnam shall have to comply with the five Vietnamese auditing standards promulgated together with this Decision in their operation.

The director of the Accounting Regime Department, the director of the Ministry's Office and the heads of the concerned units under and attached to the Ministry of Finance shall have to guide, inspect the implementation of, and implement, this Decision.

For the Minister of Finance

Vice Minister
TRAN VAN TA

THE SYSTEM OF VIETNAMESE AUDITING STANDARDS

STANDARD No. 220

QUALITY CONTROL OF AUDITING ACTIVITIES

(Promulgated together with the Finance Minister's Decision No. 28/2003/QD-BTC of March 14, 2003)

GENERAL PROVISIONS

01. The purpose of this standard is to prescribe the basic principles and procedures and guide the application thereof to the quality control of audit work in the following aspects:

a/ The audit firms' policies and procedures relating to auditing activities;

b/ Procedures relating to the work assigned to auditors and audit assistants in specific audits.

02. Auditors and audit firms must implement quality control policies and procedures for all auditing activities of audit firms and for each audit.

03. This standard shall apply to the audit of financial statements and also to the audit of other financial information and related services of audit firms.

Auditors and audit firms must comply with the provisions of this standard in the process of auditing and providing related services.

The audited units (clients) and the users of audit results must possess necessary knowledge of the principles and procedures prescribed in this standard so as to fulfil their duties and cooperate with auditors and audit firms in dealing with relationships in the auditing process.

The terms in this standard are construed as follows:

04. Audit firm means an enterprise established and operating under the law provisions on the establishment and operation of enterprises in the field of provision of independent auditing services.

05. Director (or head) of an audit firm means the highest representative at law of that audit firm, who bears the final responsibility for the audit.

06. Professional personnel means leaders of all levels, auditors, audit assistants and consultants of an audit firm.

07. Auditor means a person who possesses the auditor's certificate granted by the Ministry of Finance, has made practice registration with an independent audit firm, participates in the auditing process, may sign the auditing reports and bears responsibility for the audit before law and the director of the audit firm.

08. Audit assistant means a person who participates in the auditing process but is not permitted to sign the auditing reports.

09. Quality of auditing activities means the degree of satisfaction of the users of audit results in terms of objectivity and reliability of the audit opinions of auditors; and also satisfaction of the audited units' expectations of the auditors' opinions in order to improve the business efficiency within a pre-determined period and with reasonable charges.

CONTENTS OF THE STANDARD

Audit firms

10. Audit firms must establish and implement quality control policies and procedures with a view to ensuring that all audits are conducted in accordance with the Vietnamese auditing standards or international auditing standards accepted by Vietnam so as to constantly improve the quality of audits.

11. The contents, timetable and scope of an audit firm's quality control policies and procedures depend on a number of factors such as the size and nature of its operation, geographical area of operation, organizational structure and cost and benefit considerations. The quality control policies and procedures adopted by individual firms may vary but must comply with this standard's provisions on the quality control of auditing activities.

Examples of quality control policies and procedures are presented in Appendix No. 01.

12. In order to achieve the objectives of quality control of auditing activities, the audit firms normally apply the following policies in combination:

a/ Compliance with principles on professional ethics

Professional personnel of audit firms must adhere to the audit profession's principles on ethics of the audit profession, including independence, integrity, objectivity, professional capability, prudence, confidentiality, professional behavior and compliance with professional standards.

b/ Professional skills and competence

Professional personnel of audit firms must possess professional skills and competence, regularly maintain, update and raise their knowledge so as to fulfil their assigned tasks.

c/ Assignment

Audit work must be assigned to trained professional personnel who have adequate professional skills and competence meeting the practical requirements.

d/ Guidance and supervision

The audit work must be adequately guided and supervised for personnel at all levels to secure that it has been conducted in accordance with the auditing standards and relevant regulations.

e/ Consultation

When necessary, auditors and audit firms must consult with experts inside or outside the firms.

f/ Retention and acceptance of clients

In the process of retaining existing clients and evaluating potential ones, the audit firms must take into consideration their independence and ability to serve clients as well as the integrity of the clients' management boards.

g/ Examination

The audit firms must regularly monitor and examine the adequacy and efficiency in the process of implementing their policies and procedures for quality control of their auditing activities.

13. The audit firms' policies and procedures for quality control of their auditing activities must be communicated to all of their personnel so that they can be fully understood and implemented.

Individual audit contracts

14. Auditors and audit assistants must apply their firms' quality control policies and procedures to each audit contract in an appropriate manner.

15. Auditors shall have to consider the professional capability of audit assistants performing the work assigned to them so as to provide guidance, supervision and examination appropriate to each audit assistant.

16. When assigning work to audit assistants, it must be ensured that such work is assigned to persons with adequate professional capability as required.

Guidance

17. Auditors must guide audit assistants on the necessary contents relating to each audit such as their responsibilities for the assigned work, the objectives of the procedures they are to perform, characteristics and nature of the clients' production and business activities as well as accounting or auditing matters that may affect the contents, time table and scope of auditing procedures which they are performing.

18. The overall audit plans and the audit programs shall serve as an important tool for guiding auditors and audit assistants to perform the audit procedures.

Supervision

19. Supervision is closely related to guidance and examine and may involve both of these elements.

20. The audit firms' personnel assigned to supervise the quality of an audit must perform the following functions:

a/ Supervising the auditing process so as to determine whether or not:

- Auditors and audit assistants have adequate professional skills and capability needed to fulfil their assigned tasks;

- Audit assistants understand the audit guidelines;

- The audit work is being conducted according to the overall audit plan and the audit program;

b/ Grasping and identifying important accounting and auditing questions arising in the auditing process so as to adjust the overall audit plan and the audit program appropriately;

c/ Handling the difference of professional opinions between auditors and audit assistants jointly participating in the audits and considering whether consultation with experts is needed or not.

21. The persons assigned to supervise the quality of audits must perform the following responsibilities:

a/ If detecting that auditors and/or audit assistants breach the audit profession's ethics or show signs of colluding with clients to distort financial statements, to report such to competent persons for handling;

b/ If deeming that auditors or audit assistants fail to have the required professional skills and competence for carrying out the audits, to propose competent persons to replace such auditors and/or audit assistants so as to ensure the quality of the audits according to the set overall audit plans and audit programs.

Examination

22. The work performed by the auditors and audit assistants must be examined by persons having equal or higher professional capability in order to determine whether or not:

a/ The work has been performed in accordance with the audit program;

b/ The work performed and the results obtained have been fully documented into audit dossiers;

c/ All important audit matters have been settled or reflected in audit conclusions;

d/ The objectives of the audit procedures have been achieved;

e/ The conclusions made in the auditing process are consistent with the results of the work performed and support the audit opinions.

23. Auditors and audit firms must regularly examine the following:

a/ The implementation of the overall audit plan and the audit program;

b/ The assessments of inherent and control risks, including the results of tests of control and the modifications (if any) made to the overall audit plan and the audit program;

c/ The documentation in audit dossiers of the obtained audit evidences, including consultants' opinions, and the conclusions drawn from the basic tests;

d/ Financial statements, proposed amendments thereto and draft auditing reports.

24. When examining the quality of audits, especially big and complicated audit contracts, professional personnel outside the audit teams may be requested to carry out certain additional procedures before the issuance of the auditors' report.

25. Where there still exist divergent opinions on the quality of an audit, the audit team should discuss collectively so as to reach agreement on the evaluation thereof and draw experiences. If the audit team fail to reach agreement, such should be reported to the director for handling or presented at a meeting of the firm's key members.

APPENDIX 01

EXAMPLE OF THE POLICIES AND PROCEDURES FOR QUALITY CONTROL OF AUDITING ACTIVITIES OF AUDIT FIRMS

A. COMPLIANCE WITH THE PRINCIPLES ON PROFESSIONAL ETHICS

Policy

All professional personnel of audit firms must adhere to the principles on ethics of the audit profession, including independence, integrity, objectivity, professional capability, prudence, confidentiality, professional behavior and compliance with professional standards.

Procedures

1. Assigning an individual or group to guide and settle questions regarding independence, integrity, objectivity and confidentiality.

a/ Identifying cases where matters regarding independence, integrity, objectivity and confidentiality should be represented in writing;

b/ Consulting with experts or competent persons, when necessary.

2. Disseminating policies and procedures regarding independence, integrity, objectivity, professional capability, prudence, confidentiality, professional behavior and professional standards to all professional personnel of the firms.

a/ Informing them of the policies and procedures and requesting them to firmly grasp these policies and procedures;

b/ Emphasizing independence and professional behavior in the training programs and the process of guiding, supervising and examining audits;

c/ Informing them on a regular and timely basis of the list of clients to which independence policies apply.

- The list of clients to whom the firms must apply independence, including clients' affiliates, parent companies, joint-venture companies and associated companies;

- Notifying such list to all professional personnel in the firms so that they can determine their independence;

- Establishing procedures for notification of changes in the list.

3. Monitor and examine the implementation of policies and procedures related to the adherence to the principles on professional ethics: independence, integrity, objectivity, professional capability, prudence, confidentiality, professional behavior and compliance with professional standards.

a/ Annually requesting professional personnel to submit written representations stating that:

- They have firmly grasped the firms' policies and procedures;

- They have no prohibited investments at present and in the year when financial statements are audited;

- Relationships and transactions prohibited by the firms are not established.

b/ Assigning a person or group with competence to check the completeness of dossiers on independence compliance and to deal with exceptional cases.

c/ Periodically reviewing the relationships between the firms and clients regarding matters which may affect the audit firms' independence.

B. PROFESSIONAL SKILLS AND COMPETENCE

Policy

Professional personnel of audit firms must possess professional skills and competence, continuously maintain, update and raise their knowledge so as to accomplish their assigned tasks.

Procedures

Recruitment:

1. Audit firms must maintain a process of recruiting professional personnel by planning the personnel needs, setting recruitment objectives and requirements on qualification as well as compatibility of persons who perform the recruiting function.

a/ Planning the needs of personnel in different posts and determining the recruitment objectives based on the existing number of clients, the projected growth rate and the number of personnel who may be laid off.

b/ To achieve the recruitment objectives, designing a recruitment program with the following contents:

- Identifying sources of potential personnel;

- Methods of contacting potential personnel;

- Methods of determining specific information on each potential personnel;

- Methods of attracting potential personnel and informing them of the firms;

- Methods of evaluating and selecting potential personnel so as to achieve the necessary number of applicants for selection.

c/ Informing the people related to the recruitment of the firms' personnel needs and recruitment objectives.

d/ Assigning competent persons to decide on the recruitment.

e/ Checking the effectiveness of the recruitment program:

- Periodically evaluating the recruitment program to determine whether or not the firms have complied with policies and procedures for recruiting qualified personnel;

- Periodically reviewing the recruitment results to determine whether or not the firms have achieved personnel recruitment objectives and needs.

2. Establish criteria and guidelines for evaluating applicants for each post.

a/ Identifying the attributes to be sought in the applicants, for example: intelligence, integrity, honesty, dynamism and aptitude for the profession.

b/ Identifying achievements and experiences the firms require from applicants who are new graduates or experienced ones; for example:

- Academic background;

- Personal achievements;

- Work experiences;

- Personal interests.

d/ Making written guidelines for recruiting personnel in specific cases such as:

- Recruiting relatives of the firms' personnel, persons who have close relationships with or relatives of clients;

- Re-recruiting former employees;

- Recruiting clients' employees;

- Recruiting employees of competing firms.

d/ Gathering basic information on the applicants' qualifications by appropriate means, such as:

- Resumes;

- Job applications;

- Educational diplomas;

- Personal references;

- References of former agency (ies);

- Interviews'

e/ Evaluating the qualifications of new personnel, including those employed not through normal recruitment procedures (for example: those joining the firms in the capacity of supervisors, through merger or acquisition or joint ventures) to determine whether they meet the firms' requirements or not.

3. Inform the applicants and new personnel of the firms' policies and procedures relevant to them.

a/ Using a brochure or other means to introduce the firms to applicants and new personnel;

b/ Preparing and distributing a manual describing the firms' policies and procedures to all personnel;

c/ Conducting an professional orientation program for new personnel.

Professional training

4. Establish guidelines and requirements for continued professional fostering and notify them to all personnel of the audit firms.

a/ Assigning a person or group the responsibility for the professional development of personnel;

b/ The firms' training programs must be scrutinized by professionally qualified persons and they must set forth the training objectives and education and experience requirements;

c/ Setting forth orientations for the development of the firms and the profession for of new employees.

- Preparing materials on the orientation for the development of the firms and the profession in order to inform new employees of their professional responsibilities and opportunities;

- Assigning responsibility for conducting orientation workshops to introduce the professional responsibilities and the firms' policies.

d/ Designing professional training and refresher programs for all personnel at each level in the firms:

- Taking into consideration compulsory regulations and voluntary guidelines of laws and professional organizations when designing professional training and refresher programs;

- Encouraging participation in professional training programs outside the firms, including the form of self-study;

- Encouraging participation in professional associations and determining whether the firms would pay the whole or part of expenses;

- Encouraging personnel to serve on professional boards of professional associations, write articles, books and participate in other professional activities.

e/ Periodically examining professional training programs and archiving dossiers on the training situation of the entire firms and each individual.

- Periodically reviewing the participation of each employee in the training program so as to determine his/her compliance with the firms' requirements;

- Periodically examining the evaluation reports and other records regarding the advanced training programs to evaluate whether or not these programs are effective and have achieved the firms' objectives. Considering the needs for new programs and for revision of on-going programs or elimination of ineffective training programs.

5. Provide in time all personnel with information on professional technical standards and materials containing the firms' technical policies and procedures. Encourage them to engage in self-development activities.

a/ Providing all personnel with professional technical materials, even those on changes, including:

- National and international specialized materials on accounting and auditing;

- Documents on current laws in specific domains, for employees who take charge of such domains;

- Materials on the firms' technical and professional policies and procedures.

b/ For training programs designed by the firms, preparing materials and selecting instructors:

- The programs should clearly state the objectives, requirements on participants' education and experience;

- The training course instructors must firmly grasp the program content and teaching methods;

- Asking participants to evaluate training course contents, instructors and training conditions;

- The training program must spare time for instructors to test and evaluate training course contents, teaching methods and trainees;

- The training programs must be updated to accommodate new developments and renovations, and relevant evaluation reports;

- Archiving, and creating conditions for exploiting, professional and technical materials on the firms’ regulations relating to professional technical matters.

6. In order to train a contingent of experts in specialized domains and branches, the firms must:

a/ Organize on their own specialized training programs such as in banking auditing, computer-aided auditing, sampling methods'

b/ Encourage personnel to attend external training programs, workshops to raise their professional levels;

c/ Encourage personnel to participate in professional associations concerned with specialized domains and branches.

d/ Provide materials relating to the specialized domains and branches.

7. Audit firms must assign persons to see that all the firms' auditors participate in annual fostering and refresher programs conducted by the Ministry of Finance or by organizations authorized by the Ministry of Finance.

Advancement opportunities:

8. Audit firms must establish criteria for each rank of employee in the forms:

a/ Regulations on responsibilities and qualifications for each rank of employees, including:

- Titles and responsibilities thereof;

- Criteria on qualification and experience (or seniority) for each title.

b/ Determining qualification criteria to be used as a basis for considering and evaluating the results of actual performance and capability of each rank, for example:

- Professional knowledge;

- Analytical and judgmental abilities;

- Communication skills;

- Training skills;

- Leadership methods;

- Client relations;

- Personal attitude and professional behavior (characters, intelligence, judgment and dynamism);

- Supervisory ability.

c/ Compiling a personal manual or other means to disseminate the firms’ advancement procedures and policies to all employees.

9. Evaluate the work performance results of all employees and notify them thereof.

a/ Gathering information on and evaluating the work performance results:

- Identifying evaluation responsibilities and requirements at each level, indicating who will make these evaluations and when the evaluation results will be presented;

- Guiding the evaluation objectives;

- Using standardized forms for evaluating work performance results by self-evaluation by employees according to such forms and review by persons with higher authority.

- Re-examining previous evaluations of each employee;

- Personnel evaluations must be done by different persons;

- Determining that evaluations are completed on schedule;

- Filing written evaluations in personal dossiers;

- Evaluations of leading officials must include consultations with their subordinates to determine whether these officials continue to have the qualifications to fulfill their responsibilities or not.

b/ Periodically informing all employees of their progress and career prospect, clearly stating:

- Performance results;

- Personal and career prospects;

- Advancement opportunities of each person.

c/ Periodically promoting personnel on the basis of the evaluation results.

C. ASSIGNMENT

Policy

Audit work must be assigned to trained professional personnel who have adequate professional skills and competence to satisfy the practical requirements.

Procedures

1. Assign work to personnel:

a/ Planning the personnel needs for each of the firm's divisions;

b/ Determining the personnel need for each specific audit contract;

c/ Arranging personnel and allocating time for each audit contract;

d/ When assigning work to employees, the following factors must be considered:

- Auditing size and complexity;

- Number of existing personnel;

- Special capability and expertise required;

- Schedule of the work to be performed;

- Continuity and rotation of personnel;

- Prospect of on-the-job training.

2. Assign work to a person or group in a specific audit.

a/ Persons with responsibility for work assignment must consider the following factors:

- Staffing and timing requirements of the audit contract;

- Qualifications, experiences, positions, educational background and special abilities of personnel;

- The participation plans of persons assigned the supervisory responsibilities;

- Projected time required for of each individual;

- Circumstances which may affect independence, for example: assignment of work to professional personnel who have economic or kin relation with the leaderships of the audited units.

b/ When assigning work, consideration should be given to continuity and rotation to enable personnel to perform their work effectively, as well as to capabilities, qualifications and experiences of other personnel.

3. The timing and personnel plan for an audit must be approved before implementation.

D. GUIDANCE AND SUPERVISION

Policy

Audit work must be adequately guided and supervised for personnel at all levels to ensure that it has been performed in compliance with the auditing standards and relevant regulations.

Procedures

1. Procedures for planning audits

a/ Assigning responsibility for planning audits;

b/ Reviewing information obtained from previous audits and updating new information;

c/ Working out the overall audit plan and the audit program.

2. Procedures for maintaining the quality standards:

a/ Conducting supervision at all levels; considering the training process, abilities and experiences of the assigned personnel;

b/ Issuing guidelines for the forms and contents of working papers;

c/ Using appropriate standardized forms, checklists, and questionnaires to assist in the audit work;

d/ Establishing procedures for settling differences of professional judgment.

3. Provide on-the-job training in the auditing process.

a/ Regularly discussing with audit assistants the relationships between the work performed by each person and the audit as a whole and arranging assistants to participate in many portions of the audit;

b/ Incorporating the content of "personnel management skills" into the firms' training program;

c/ Encouraging personnel to participate in the "programs on training and developing subordinates";

d/ Monitoring the assigned work to determine whether personnel have grasped professional technical knowledge and auditing experiences in each domain or not.

E. CONSULTATION

Policy

When necessary, auditors and audit firms must consult with experts inside and outside the firms

Procedures

1. Identify domains and situations where consultation is required and encourage personnel to consult with experts and competent persons.

a/ Informing personnel of the firms' consultation policies and procedures;

b/ Specific domains or complex professional requiring consultation, such as:

- Application of newly promulgated legal documents relating to professional technical matters;

- Business lines with special accounting, auditing and reporting requirements;

- Newly arising problems;

- Requirements of law and regulations of functional bodies, especially the requirements of international law.

c/ Maintaining the operation of the archival section and referring to web sites or other means, such as:

- Referring to materials at various sections or the firms;

- Establishing a professional manual and circulating professional instruction materials, including documents relating to particular business lines and other specialties;

- Maintaining consultation with other firms and individuals;

- Referring, when necessary, complicated problems to a group of specialists.

2. Assign persons in specialized charge and define their powers in the consultation areas.

a/ Assigning archivists to work with law agencies;

b/ Assigning personnel to monitor each particular business line;

c/ Informing all personnel of the powers of persons in specialized charge and of the procedures for dealing with divergent opinions.

3. Specify the archival of documents on the results of consultation:

+ Archival responsibility;

+ Place of archival and conditions for use of archived documents;

+ Archiving dossiers relating to the consultation results for reference and research purposes.

F. RETENTION AND ACCEPTANCE OF CLIENTS

Policy

In the process of retaining existing clients and evaluating potential clients, audit firms must consider their independence and ability to serve clients and the integrity of the clients' management boards.

Procedures

1. Establish procedures for evaluating and accepting potential clients.

a/ Procedures for evaluating potential clients, including:

- Gathering and reviewing available documents relating to potential clients, such as financial statements and tax payment declaration forms;

- Exchanging with third parties information on potential clients, their directors (or heads) and key personnel;

- Exchanging with the previous years' auditors on matters relating to the directorates' honesty, on disagreements among the directorates concerning accounting policies, audit procedures or other important matters, and on the reasons for the change of auditors;

- Considering special circumstances or possible risks of contracts;

- Assessing the audit firms' independence and ability to serve their potential clients;

- It must be determined that acceptance of clients must not violate the audit profession's ethical principles.

b/ Assigning a person or group at appropriate management levels to evaluate information and make decisions whether to accept clients or not.

c/ Informing personnel of the firms' policies and procedures for accepting clients.

d/ Assigning persons to inspect and supervise the observance of the firms' policies and procedures for accepting clients.

2. Evaluate clients upon the occurrence of special events to determine whether to maintain the relationships therewith or not.

a/ Special events when clients should be evaluated include:

- The expiry of a certain period;

- A major change in one or more of the following factors:

+ The management board;

+ Directors (of heads);

+ Capital owners;

+ Legal advisers;

+ Financial status;

+ Litigation and disputes;

+ Contractual breaches;

+ Nature of the clients' business lines.

b/ Assigning a person or group at appropriate management levels to evaluate information and make decisions whether to retain these clients or not.

c/ Informing personnel of the firms' policies and procedures for retaining clients.

d/ Assigning persons with responsibility to examine and supervise the observance of the firms' policies and procedures for retaining clients.

G. EXAMINATION

Policy

Audit firms must regularly monitor and examine the adequacy and effectiveness in the process of implementing the firms' policies and procedures for controlling their operational quality.

Procedures

1. Establish the firms' examination procedures, contents and program.

a/ Examination procedures include:

- Determining the examination objectives and working out the examination program;

- Issuing guidelines on the scope of examination and criteria for selecting contents to be examined;

- Setting the frequency and time of examination;

- Establishing procedures for settling disagreements when they arise.

b/ Setting criteria of professional qualifications and competence for selecting examiners.

c/ Conducting examination activities:

- Scrutinizing and examining the adherence to the firms' policies and procedures for controlling the quality of audit work;

- Scrutinizing and examining the compliance with the professional standards and with the firms' procedures for controlling quality applicable to a selected audit contract.

2. Providing for reporting on findings in the examinations to the appropriate management levels, for examining activities already implemented or planned to be implemented, and for examining the firms' audit work quality control system.

a/ Discussing findings in the examination process with responsible persons;

b/ Discussing findings in the process of examining selected audit contracts with the firms' persons assigned with supervisory responsibility;

c/ Reporting on general findings and specific findings of selected audit contracts and proposing to the directorates remedial measures already taken or planned to be taken;

d/ Identifying needs for modification of audit work quality control policies and procedures on the basis of the examination results and other relevant matters.

STANDARD No. 320

AUDIT MATERIALITY

(Promulgated together with the Finance Minister's Decision No. 28/2003/QD-BTC of March 14, 2003)

GENERAL PROVISIONS

01. The purpose of this standard is to prescribe the basic principles and procedures and guide the modes of application thereof to the responsibilities of auditors and audit firms when determining materiality in auditing financial statements and the relationship between materiality and audit risk.

02. When conducting audits, auditors must pay attention to materiality and its relationship with audit risk.

03. This standard shall apply to the audit of the financial statements and also to the audit of other financial information of audit firms.

Auditors and audit firms must observe the provisions of this standard in the process of auditing the financial statements.

The audited units (clients) and the users of audit results must possess necessary knowledge of this standard so as to cooperate in working and handling relationships relating to the determination of materiality of audited information.

The terms in this standard shall be construed as follows:

04. Materiality is the concept used to express the importance of a piece of information (an accounting figure) in the financial statements.

Information is regarded as material if its omission or inaccuracy could influence the decisions of users of the financial statements. Materiality depends on the magnitude and nature of information or error judged in particular circumstances. Materiality is a threshold or cut-off point rather than a content which information must have. Information materiality must be considered both quantitatively and qualitatively.

CONTENTS OF THE STANDARD

Materiality

05. The objective of the audit of financial statements is to enable auditors and audit firms to confirm whether or not the financial statements have been made in accordance with the current (or accepted) accounting standards and regimes, with relevant laws and honestly or rationally reflect material aspects. The determination of the level of materiality is a matter of professional judgment of auditors.

06. When planning audits, auditors must determine an acceptable materiality level to serve as a basis for detecting quantitatively material errors. However, to judge errors as material, auditors must consider them both quantitatively and qualitatively. For example, non-compliance with the current accounting regimes may be considered a material error if it leads to the incorrect presentation of indexes in the financial statements, thus making users of financial information misunderstand the nature of the matters; or the financial statements fail to describe matters relating to non-continuous activities of enterprises.

07. Auditors should consider the possibility of relatively small errors that, if added up, could have a material effect on the financial statements, such as an error in a month-end accounting procedure may become a potential material error if it is repeated each month.

08. Auditors should consider materiality in terms of the extent of erroneousness of the financial statements as a whole in relation to detailed errors in individual account balances, transactions and information disclosed in the financial statements. Materiality may be influenced by other factors such as legal requirements or matters related to different financial statement items and the relationships between these items. In the process of consideration, different materiality levels may be discovered, depending on the nature of matters put forward in the audited financial statements.

09. Auditors must determine materiality when:

a/ Determining the contents, timing and scope of auditing procedures;

b/ Evaluating the effect of errors.

The relationship between materiality and audit risk

10. When planning audits, auditors must consider factors which may give rise to material errors in the financial statements. The auditors' assessment of materiality relating to account balances and major transactions shall help the auditors determine which items to be examined and decide to use sampling or analytical procedures. The materiality assessment relating to account balances and major transactions shall help the auditors select suitable audit procedures that, when combined, shall reduce audit risk to an acceptable level.

11. There is an inverse relationship between materiality and audit risk in an audit: The higher the materiality level is, the lower the audit risk would be and vice versa. Auditors should take this relationship into account when determining the contents, timing and scope of audit procedures in an appropriate manner, such as when planning audits, if auditors determine that the acceptable materiality level is low, audit risk is increased. In this case, auditors may:

a/ Reduce the assessed level of control risk by carrying out extended or additional tests of control so as to prove the reduced level of control risk; or

b/ Reduce detection risk by modifying the contents, timing and scope of detailed examination procedures already planned.

Materiality and audit risk in evaluating audit evidences

12. The auditors' materiality and audit risk assessment results at the time of initially planning the audits may be different from the assessment results at different times in the auditing process. Such difference could be attributed to a change in practical circumstances or a change in the auditors' knowledge of the audited units on the basis of the obtained audit results, such as when the audit is planned before the end of a fiscal year, the auditors have assessed materiality and audit risk on the basis of the enterprises' anticipated operation results and financial situation. If the enterprises' actual financial situation and operation results are substantially different therefrom, the assessment of materiality and audit risk will also change. Moreover, when planning audits, auditors usually set the acceptable materiality level lower than that is used to evaluate the audit results in order to increase the possibility to detect errors.

Evaluation of the effect of errors

13. When evaluating the financial statements' honesty and rationality, auditors must assess whether the aggregate of uncorrected errors which have been detected in the auditing process constitutes a material error or not.

14. The aggregate of uncorrected errors comprises:

a/ Errors detected by auditors in the current year, including those detected in the previous years and not yet corrected in the audit year;

b/ The auditors' estimation of other errors which cannot be specifically determined (projected errors) in the financial statements of the audit year.

15. Auditors should consider whether the aggregate of uncorrected errors may be material or not. If they conclude that the aggregate of such errors is material, they should take action to reduce audit risk by adding necessary audit procedures or requesting the directors of the audited units to adjust the financial statements.

16. Where the directors of the audited units refuse to adjust the financial statements and the results of application of additional audit procedures permit the auditors to conclude that the aggregate of uncorrected errors is material, they should consider and modify the auditing reports in accordance with Vietnamese Auditing Standard No. 700 "Auditing reports on financial statements."

17. If the aggregate of uncorrected errors which have been detected approximates the set materiality level, auditors must consider the possibility that whether the undetected errors, when combined with those detected but uncorrected, could constitute material errors or not. In this case, auditors should reduce audit risk by adding necessary audit procedures or requesting the directors to adjust the financial statements to correct the detected errors.

STANDARD 501

ADDITIONAL AUDIT EVIDENCES FOR SPECIAL ITEMS AND EVENTS

(Promulgated together with the Finance Minister's Decision No. 28/2003/QD-BTC of March 14, 2003)

GENERAL PROVISIONS

01. The purpose of this standard is to prescribe the basic principles and procedures and guide modes of application thereof to the gathering of additional audit evidences for special items and events in the process of auditing financial statements. The principles and procedures prescribed in this standard supplement those prescribed in Standard No. 500 "Audit evidences."

02. The application of the principles and procedures described in this standard shall assist auditors and audit firms in obtaining sufficient appropriate audit evidences for special items in the financial statements and several related events.

03. This standard shall apply to the audit of financial statements and also to the audit of other financial information and related services of audit firms.

Auditors and audit firms must observe the provisions of this standard in the process of conducting audits.

The audited units (clients) and users of the audit results must possess necessary knowledge of this standard so as to cooperate in dealing with relationships relating to the supply and gathering of audit evidences for special items and events.

CONTENTS OF THE STANDARD

04. Special items and events in the audit of financial statements normally include:

- Inventory;

- Receivables;

- Long-term investments;

- Litigation and dispute cases;

- Information on various domains or geographical areas.

Whether items and events are determined as special or not depends on each audited unit and the assessment of auditors. When determining that items or events are special, auditors must perform the following:

Participation in inventory counts

05. The audited units must establish inventory counting procedures and count inventory physically at least once a year to serve as a basis for checking the reliability of the regular declaration system and for preparing financial statements.

06. When inventory is determined as material to the financial statements, auditors must gather sufficient appropriate audit evidences regarding the existence and conditions of inventory by participating in physical inventory counts unless such participation is impossible. When the units count inventory, auditors may only supervise the counting or directly join in counting inventory samples so as to gather evidences regarding compliance with the counting procedures and check the reliability of these procedures.

07. If unable to participate in the physical inventory counts on the planned date, auditors must re-count a number of commodity items on another date and, when necessary, check inventory fluctuations occurring before the time of recounting and after the time the units take the count.

08. If unable to participate in the count, for example due to the nature and location of the count, auditors must determine whether they can carry out alternative inspection procedures in order to gather sufficient appropriate evidences regarding the existence and conditions of inventory, so that they can avoid to express an exclusion opinion because of the limitation in the auditing scope, for example, checking sale vouchers after the date of physical inventory count may provide appropriate audit evidences.

09. If auditors plan to participate in the physical inventory count or carry out alternative inspection procedures, they must consider the following factors:

- The characteristics of the accounting and internal control systems relating to inventory;

- Inherent, control and detection risks, and materiality of the item of inventory;

- Whether or not the inventory counting procedures have been established and instructed to inventory counters;

- The inventory count plan;

- The locations of inventory counting;

- The necessity to invite experts to participate in the counting.

10. Where auditors have participated in the physical inventory count one or more times during the year, they only need to observe the carrying out of counting procedures and check inventory samples.

11. If units estimate the inventory quantity, such as estimating a coal pile, auditors must consider the reasonableness of this method of estimation.

12. When the physical inventory count is taken simultaneously at various locations, auditors must select appropriate locations for participation in the count, depending on the materiality of the category of inventory and the assessment of inherent and control risk at these locations.

13. Auditors must check the audited units' regulations on inventory count:

a/ The application of control procedures, such as checking of methods of weighing, measuring, counting, receiving and delivering inventory; procedures for recording warehouse books, warehouse cards, recording of count cards and summing of count results;

b/ The determination of unfinished products, slow-moving, obsolete or damaged goods, goods sent for processing, to agents or on consignment, goods received for processing, for agency sale...;

c/ The determination of appropriate procedures relating to the internally circulated goods, goods received and delivered before and after the counting date.

14. To ensure the inventory count procedures be strictly complied with, auditors must supervise the carrying out of these procedures and may directly participate in the sample count. Auditors must check both the accuracy and completeness of the count cards by selecting and checking a number of commodity items actually kept in the warehouses for comparison with the count cards or selecting and checking a number of count cards for comparison with the goods actually kept in the warehouses. Of the checked count cards, auditors should consider which ones need to be retained for subsequent checking and comparison.

15. Auditors should also consider period-end procedures, mostly details of the value of inventory moved just before, during and after the count so that the accounting of such value can be checked later.

16. In practice, the physical inventory count may be conducted at a time other than period end. This method will normally apply to audits only when control risk is assessed as low or average. In this case, auditors must carry out appropriate procedures to consider whether fluctuations in inventory between the count date and the period-end date are correctly accounted or not.

17. If the audited units apply the periodical count method for accounting inventory, the value of inventory is determined at the period-end, but auditors must carry out several additional procedures to assess whether or not the reasons for any significant differences between the count data and the data in accounting books have been determined by the units and to check whether or not such differences have been adjusted.

18. Auditors must check the year-end lists of counted inventory to determine whether they reflect fully and accurately the actual inventory quantities or not.

19. Where inventory is under the control or custody of a third party, auditors must request the third party to directly confirm the quantities and conditions of inventory held by the third party on behalf of the unit. Depending on materiality of this inventory, auditors should also consider the following factors:

- The integrity and independence of the third party;

- The necessity to directly participate in the count or to invite other auditors or audit firms to participate in the count;

- The necessity to have other auditors' reports on the compatibility of the third party's accounting and internal control systems for ensuring that inventory is correctly counted and carefully preserved.

- The necessity to examine inventory-related documents held by the third party, for example, warehouse receipts, confirmations from other parties that they are holding such inventory as collateral.

Confirmation of receivables

20. Where receivables are determined as material to the financial statements and when it is likely that debtors will respond, auditors must plan to request these debtors to confirm such receivables or data constituting the account balance of receivables.

21. Direct confirmation shall provide reliable audit evidences regarding the existence of receivables and the accuracy of account balances. However, such confirmation does not normally provide sufficient evidences regarding the recoverability of receivables or regarding the existence of unaccounted receivables.

22. Where auditors assume that debtors will not respond to letters of request for confirmation of receivables, they must plan alternative procedures, for example, examining documents constituting the account balance of receivables.

23. Auditors may sort out receivables which need to be confirmed so as to ensure the existence and accuracy of receivables as a whole, taking into account receivables that may affect identified audit risk and other planned audit procedures.

24. Letters of request for confirmation of receivables shall be sent by auditors, clearly stating the authorization by the audited units and the permission for debtors to supply information directly to auditors.

25. Auditors' letters of request for confirmation of receivables (possibly including confirmation of payables) in Vietnam dong and in foreign currency (if any) may take two forms:

- Form A: clearly stating the amount of receivables and requesting debtors to confirm it is correct or how much it is;

- Form B: not stating the amount of receivables but requesting debtors to clearly indicate the amount of receivables or express different opinions.

26. Form-A confirmation (see paragraph 25) provide audit evidences more reliable than form-B confirmation (see paragraph 25). The selection of either form depends on each specific circumstance and the auditors' assessment of potential risk and control risk. Form-A confirmation is more appropriate when potential risk and control risk are assessed as high.

27. Auditors may combine both forms of confirmation above. For example, when the total of receivables consists of a small number of large receivables and a large number of small receivables, auditors may request Form-A confirmation for all or some large receivables and accept Form-B confirmation for a large number of small receivables.

28. Past a reasonable period of time after sending letters of request for debt confirmation, if receiving no replies from debtors, auditors may send a reminder letter to them. Letters of confirmation of exceptional cases should be more thoroughly investigated.

29. Auditors must perform alternative procedures or continue investigating and/or interviewing when:

- No reply is received;

- Replies confirm debt amounts different from the balances of the audited units;

- Replies contain different opinions.

After performing alternative procedures or continuing investigating and/or interviewing, if finding that there is still not enough reliable evidences or it is impossible to perform alternative procedures, any difference shall be regarded as an error. For example, performing alternative procedures such as examining sales invoice and receipts of receivables for which no reply is received.

30. In practice, when control risk is assessed as low, auditors may request confirmation of the balance of receivables at a time other than the last day of the fiscal year. For example, if auditors must finish the audit work within a very short time limit after the last day of a year, they must examine all transactions occurring between the time when the balance of receivables is confirmed and the last day of the fiscal year.

31. Where the directors of the audited units request auditors not to send letters of request for confirmation to a number of debtors, auditors must consider whether such requests are justified or not. For example, if a receivable is being disputed between the two parties or if requests for confirmation of debts would badly affect on-going negotiations between the units and debtors. Before accepting such requests, auditors must consider evidences supporting the directors' explanations. In this cases, auditors must apply alternative procedures for the balance of receivables for which letters of request for confirmation must not be sent.

Valuation and presentation of long-term investments

32. If long-term investments are regarded as material to the financial statements, auditors must gather sufficient appropriate audit evidences regarding the valuation and presentation of long-term investments.

33. The procedures for auditing long-term investments normally aim to determine whether or not the units have the ability and intend to hold these long-term investments and must gather written representation to that effect.

34. The audit procedures normally include the examination of financial statements and other relevant information, such as determination and comparison of the market prices of securities with the book value of long-term investments up to the date of the auditing reports.

35. If the market prices are lower than the book value, auditors must consider the necessity to set up price decrease reserves. If doubting the recoverability of investments, auditors must take into account appropriate adjustments and explanations presented in the financial statements.

Litigation and dispute cases

36. Litigation and dispute cases involving the audited units, which may have a material effect on the financial statements, must be presented in the financial statements as provided for.

37. Auditors must carry out procedures to identify litigation and dispute cases involving the units, which may have a material effect on the financial statements. These procedures include:

- Inquiring the directors, asking for written representations;

- Examining minutes of meetings of the management boards and correspondence with the units' legal advisors;

- Examining legal advise expenses;

- Using all information relating to litigation and dispute cases.

38. When litigation and/or dispute cases have been identified or when auditors doubt that they may exist, they must request the units' legal advisors to directly supply information. With this method, they can obtain sufficient appropriate audit evidences regarding the cases as well as the degree of damage affecting the units' financial statements.

39. Letters of request for the units' legal advisors to supply information on litigation and/or dispute cases must be signed by the audited units and sent by auditors. Such a letter contains the following contents:

- A list of litigation and/or dispute cases;

- The assessment by the audited unit's director of the consequences of the litigation and/or dispute cases and estimation of their financial impacts, including related legal expenses.

- A request that the unit's legal advisor confirms the reasonableness of the director's assessments and provides the auditors with further information

40. Auditors must consider the happenings of litigation and/or dispute cases up to the date of signing of the auditor' reports. When necessary, auditors may gather updated information from legal advisors.

41. Where the cases are very complicated or there is disagreement between the directors of the audited units and their legal advisors, auditors must meet with the legal advisors to discuss the consequences of the cases. Such meetings must be consented by the directors of the audited units and attended by representatives of the units' directorates.

42. Where the directors of the audited units refuse to permit auditors to meet with the units' legal advisors, this will constitute a limitation in the auditing scope and auditors must give a partial acceptance opinion or an opinion on refusal to express opinion. Where the clients' legal advisors refuse to reply with plausible reasons and auditors are also unable to gather sufficient audit evidences by applying alternative procedures, the auditors must consider whether this constitutes a limitation in the auditing scope and thus may express a partial acceptance opinion or an opinion on refusal to express opinion

Information on various domains or geographical areas

43. Where information relating to various domains and geographical areas is regarded as material to the financial statements, auditors must gather sufficient appropriate audit evidences regarding the information which needs to be disclosed in the financial statements in accordance with the current accounting standards.

44. Auditors must consider information relating to various domains and geographical areas in relation to the financial statements taken as a whole. Auditors are not required to apply audit procedures in order to express their own opinions on information relating to various domains and geographical areas. However, the concept of materiality must encompass both quantitative and qualitative factors and the auditors' procedures used for determining material information must reckon this.

45. The audit procedures for information relating to various domains and geographical areas normally consist of analytical procedures and audit tests appropriate in each specific circumstance.

46. Auditors should discuss with the directors of the audited units the methods used to collect information relating to various domains and geographical areas, and consider whether or not these methods are in accordance with the current accounting standards and ensure that they are strictly applied. To realize this, auditors must consider sale turnover, charges of transfers between domains or geographical areas, elimination of amounts arising within a domain or area; comparisons with plans and other budget estimates, for example, the percentage of profits over sale turnover, and the allocation of assets and costs among segments in consistency with previous periods and the adequacy of the presentations in the financial statements when inconsistency exists.

STANDARD 560

EVENTS OCCURRING AFTER THE DATE OF CLOSING ACCOUNTING BOOKS AND MAKING FINANCIAL STATEMENTS

(Promulgated together with the Finance Minister's Decision No. 28/2003/QD-BTC of March 14, 2003)

GENERAL PROVISIONS

01. The purpose of this standard is to prescribe the basic principles and procedures and guide the modes of application thereof to the responsibility of auditors and audit firms when considering events occurring after the date of closing accounting books and making financial statements for auditing in the process of auditing the financial statements.

02. Auditors must consider the effect of events occurring after the date of closing accounting books and making financial statements on the financial statements and the auditing reports.

03. This standard shall apply to the audit of financial statements and also to the audit of other financial information of audit firms.

Auditors and audit firms must observe the provisions of this standard in the process of auditing financial statements.

The audited units (clients) must possess necessary knowledge of this standard so that they can cooperate with auditors in supplying information and materials relating to the events occurring after the date of closing accounting books and making financial statements.

The terms in this standard are construed as follows:

04. Events occurring after the date of closing accounting books and making financial statements mean events affecting the financial statements, which have occurred after the date of closing accounting books and making financial statements till the date of signing the auditing report; and events detected after the date of signing the auditing report.

There are two kinds of events occurring after the date of closing accounting books and making financial statements:

a/ Events that provide further evidences of the events that existed up to the date of closing accounting books and making financial statements;

b/ Events that provide signs of events that arose after the date of closing accounting books and making financial statements.

05. The date of closing accounting books and making financial statements means the date lasting till the end of the last day of the accounting year. For example, if the accounting year spans from January 1 to December 31 of the calendar year, the date of closing accounting books and making financial statements lasts until the 24th hour of December 31 of such year.

06. The financial statement date means the date inscribed on a financial statement above the section reserved for the director's (or authorized person's) signature and the stamp of the audited unit. The financial statement date must be subsequent to the date of closing accounting books and making financial statements.

07. The date of signing the auditing report means the date inscribed on an auditing report above the section reserved for the auditor's signature, the director's (or authorized person's) signature and the stamp of the audit firm. The date of signing the auditing report may be either the date of actually signing the auditing report or the date when the audit work finishes at the audited unit. The audit firms must decide on their own the date of signing the auditing report which, however, must be subsequent to or coincide with the financial statement date.

08. The financial statement publicization date means the date of the postmark or the earliest date of signing for receipt of the financial statements and auditing reports which are submitted to the State bodies or publicized.

CONTENTS OF THE STANDARD

09. Events occurring after the date of closing accounting books and making financial statements and relating to the responsibility of auditors and audit firms are classified into three stages:

- Events occurring up to the date of signing the auditing report;

- Events discovered after the date of signing the auditing report but before the financial statement publicization date;

- Events discovered after the financial statement publicization date.

Events occurring up to the date of signing the auditing report

10. Auditors must establish and perform audit procedures to gather sufficient appropriate audit evidences in order to determine all events occurring up to the date of signing the auditing report, which may affect the financial statements, and request the units to make adjustment of, or present explanations in, the financial statements. These procedures supplement routine procedures applied to special events occurring after the date of closing accounting books and making financial statements in order to collect further audit evidences regarding account balances at the time of making financial statements. However, auditors are not required to consider all matters on which previously applied procedures have provided satisfactory conclusions. For example, examining the sale of inventory and the settlement of debts after the date of closing accounting books would provide evidences regarding the value of inventory in the financial statements.

11. The procedures to identify events that may require the audited units to adjust the financial statements or present explanations therein should be performed at a time nearest to the date of signing the auditing report and normally include the following steps:

+ Reviewing procedures the units have prescribed to ensure that all events occurring after the date of closing accounting books and making financial statements are identified.

+ Reading minutes of the meetings of shareholders, the management boards, the Control Boards and the directorates held after the date of closing accounting books and making financial statements, and inquiring about matters discussed at these meetings but not recorded in the minutes.

+ Reading the units' financial statements of the latest period and the financial plans as well as other management reports of the directors.

+ Requesting the units or their lawyers to supply further information concerning the previously notified litigation and/or dispute cases or other litigation and dispute cases (if any).

+ Inquiring the units' directors to identify events which occur after the date of closing accounting books and making financial statements and may materially affect the financial statements, such as:

- Data temporarily calculated or not yet confirmed;

- Commitments, borrowings or guarantees, which have been recently entered into;

- Sales of assets, which have been effected or are planned;

- Newly issued shares or bonds;

- Merger or dissolution agreements, which have been signed or are planned;

- Assets which have been appropriated or destroyed due to fire or flood

- Risks or contingencies;

- Unusual accounting adjustments, which have been made or are planned;

- Events which have occurred or are likely to occur and thereby render inappropriate the accounting policies already used for making financial statements. For example, the occurrence of bad debts would render invalid the presumption on the continuity of business activities.

12. Where a subordinate unit (a company's branch or a company under a corporation) is audited by another independent audit firm, auditors who audit the superior unit must consider the procedures applied by such audit firm's auditors to the events occurring after the date of closing accounting books and making financial statements and examine whether or not they need to inform such audit firm of the expected date of signing their auditing reports.

13. When recognizing that the events occurring after the date of closing accounting books and making financial statements materially affect the financial statements, auditors must determine whether these events are correctly calculated and properly presented in the audited financial statements.

Events discovered after the date of signing the auditing report and before the financial statement publicization date

14. Auditors are not required to apply procedures or review matters relating to the financial statements after the date of signing the auditing report. The directors of the audited units shall, however, have to notify the auditors or audit firms of the events which have occurred after the date of signing the auditing report and before the financial statement publicization date and may affect the audited financial statements.

15. Where auditors become aware of an event which occurs after the date of signing the auditing report and before the financial statement publicization date and may materially affect the financial statements, they must consider whether or not the financial statements and auditing reports need to be amended and must discuss this matter with the audited units' directors so as to take appropriate measures in each particular circumstance.

16. Where, at the auditors' request, the directors of the audited units accept to amend the financial statements, the auditors shall perform necessary procedures suitable to the practical circumstances and then provide the audited units with a new report based on the amended financial statements. The new auditing report must be signed at the same date of the amended financial statements or at a later date. In this case, auditors must perform the audit procedures specified at paragraphs 10 and 11 till the date of signing the amended auditing report.

17. Where the directors of the audited units do not amend the financial statements as requested by auditors, and the auditing reports have not yet been sent to the audited units, the auditors and audit firms shall make a new auditing report expressing a partial acceptance opinion or non-acceptance opinion.

18. Where events which have a material effect on the financial statements are discovered only after the auditing reports have been sent to the audited units, the auditors shall request the heads of the audited units not to publicize the financial statements and the auditing reports to third parties. If the units still decide to publicize these reports, the auditors must apply appropriate measures to prevent the third parties from using their auditing reports. The preventive measures taken will depend on the auditors' legal powers and obligations as well as the recommendations of the auditors' lawyers.

Events discovered after the financial statement publicization date

19. After the financial statements and the auditing reports have been publicized, auditors are not required to consider and examine any data or events relating to the audited financial statements.

20. After the financial statements and the auditing reports have been publicized, if auditors become aware of events which occurred up to the date of signing the auditing report and cause the auditors to modify the auditing reports, the auditors should consider whether the financial statements and the auditing reports need to be revised or not and must discuss this matter with the directors of the audited units and take appropriate measures in each particular circumstance.

21. Where the directors of the audited units accept to revise the financial statements, the auditors must carry out necessary appropriate procedures and review the measures taken by the audited units to ensure that any recipients of the financial statements and the auditing reports are informed of this matter. At the same time, the auditors and audit firms must publicize a new auditing report based on the revised financial statements.

22. The new auditing reports must contain a paragraph explaining the reasons for the revision of the previously publicized financial statements and auditing reports. The new auditing reports shall be signed at the same date of the revised financial statements or at a later date. In this case, auditors must perform the audit procedures specified at paragraphs 10 and 11 till the date of the revised auditing report.

23. Where the directors of the audited units do not notify the matter mentioned at paragraph 21 above to the recipients of the previously publicized financial statements and auditing reports nor revise the financial statements at the auditors' requests, the auditors and audit firms must notify the directors of the audited units of the measures to be taken by the auditors to prevent the third parties from using the auditing reports. The preventive measures taken will depend on the auditors' legal powers and obligations as well as the recommendations of the auditors' lawyers.

24. Where the financial statements for the following fiscal year are being audited by the audit firms and are bound to be publicized, it may not be necessary to revise the financial statements and auditing reports for the preceding fiscal year provided that the matter mentioned at paragraph 21 above is clearly described in the representations on the financial statements for the following year.

Cases where the audited units issue securities

25. Where the audited units issue securities on the market, auditors must consider any law provisions relating to the securities issuance. For example, auditors may be required to carry out additional audit procedures till the date when the audited units post up securities issuance information. These procedures normally include measures specified at paragraphs 10 and 11 till the time of posting up information and reviewing documents on the posted information to ascertain that the posted information is consistent with the financial information already confirmed by the auditors.

STANDARD No. 600

USE OF OTHER AUDITOR’S MATERIALS

(Promulgated together with the Finance Minister's Decision No. 28/2003/QD-BTC of March 14, 2003)

GENERAL PROVISIONS

01. The purpose of this standard is to prescribe the basic principles and procedures and guide the mode of application thereof to the use of other auditors' auditing materials regarding the financial information of one or many units when auditing the financial statements of a unit, including financial information of subordinate units and of other economic units.

02. When the principal auditors use the audit materials of other auditors, they must determine the extent of influence of such materials on their audits.

03. This standard shall apply to the audit of the financial statements of a unit, which include financial information of one or many subordinate units, and other economic units. This standard shall not apply to cases involving two or more auditors appointed as joint auditors for a unit, nor does it deal with the relationship between the present auditors and the previous year’s auditors.

Where the principal auditors conclude that the financial statements of subordinate units and other economic units have an immaterial effect, this standard shall not apply, except where many units, though each having an immaterial effect, can together produce a material effect, the application of this standard should be considered.

The audited units (clients), units and individuals related to the use of other auditors' materials by the principal auditors must possess necessary knowledge of the essential principles and procedures in this standard so that they can cooperate with the audit firms and the principal auditors in the auditing process.

The terms in this standard are construed as follows:

04. Principal auditors mean the auditors with responsibility for auditing the financial statements and signing the auditing reports of units, including financial information of one or many subordinate units and other economic units audited by the other auditors.

05. Other auditors mean the auditors with responsibility for auditing the financial statements and signing the auditing reports of subordinate units or other economic units, which are included in the financial statements of the superior unit. Another auditor is the auditor working for another audit firm or for a branch or office of the audit firm.

06. Subordinate units mean units, components, branches, subsidiaries or member companies of the superior units, whose financial information is included in the superior units' financial statements audited by the principal auditors.

07. Other economic units mean units, joint-venture companies, associated companies with economic relations, whose financial information is included in the units' financial statements audited by the principal auditors.

CONTENTS OF THE STANDARD

Acceptance as principal auditors

08. To accept auditor contracts with the principal auditor's responsibility, auditors and audit firms must consider the following matters:

+ The materiality of the portion of the financial statements which the principal auditors audit;

+ The principal auditors' knowledge about the situation of business activities of the subordinate units and other economic units audited by the other auditors;

+ The risk of material errors in the financial statements of the subordinate units and other economic units audited by other auditors;

+ The possibility to perform additional procedures as prescribed in this standard, which relate to financial information of subordinate units and other economic units audited by other auditors with the participation of the principal auditors.

Audit procedures performed by the principal auditors

09. When planning the audits involving the use of other auditor's materials, the principal auditors must consider the professional capability of the audit firms and other auditors in the context of their actual work.

In order to consider professional capability of the audit firms and other auditors, the principal auditors must base themselves on the following sources of information: the audit organizations where the other auditors have made practice registration; colleagues of the other auditors; clients or people having working relations with the other auditors, or through face-to-face meetings with the other auditors.

10. The principal auditors should perform necessary procedures to obtain sufficient appropriate audit evidences that the other auditors' work is relevant to the principal auditors' audit work and purposes in each specific audit.

11. The principal auditors should advise the other auditors of:

+ The independence requirements related to the superior unit, subordinate units and other economic units and obtain written representations on compliance therewith

+ The use of the other auditors' materials and reports and the coordination between the two parties right at the audit planning stage;

+ Matters requiring special consideration; procedures for identification of internal transactions that need to be stated in written explanations, and the timetable for the audit;

+ The accounting, auditing and reporting requirements and obtain written representations on compliance therewith.

12. The principal auditors may discuss with the other auditors the audit procedures already applied by the latter or review the other auditors' audit dossiers. The performance of these audit procedures will depend on the specific context of the audit and on the principal auditors' assessment of the professional capability of the other auditors.

13. The principal auditors are not required to apply the procedures stated in paragraph 12 if they have sufficient appropriate audit evidences that the audit procedures performed by the other auditors are satisfactory and ensure the audit quality.

14. The principal auditors must consider the significant findings of the other auditors.

15. The principal auditors may discuss with the other auditors and the directors of the subordinate units and other economic units the significant findings or other matters affecting the financial statements of such units. When necessary, the principal auditors may perform additional procedures to check the records or financial statements of the subordinate units. Depending on the particular circumstances, these checking procedures may be performed by the principal auditors or the other auditors.

16. The principal auditors should archive in their audit dossiers documents relating to the financial statements of the subordinate units and other economic units audited by the other auditors; documents on the performance of audit procedures and conclusions reached therefrom; the names of the other auditors and any conclusions, though being immaterial, reached by the other auditors.

Cooperation between auditors

17. The other auditors must cooperate with the principal auditors in cases the principal auditors use their auditing materials. For example, the other auditors must inform the principal auditors of any portions of their work that cannot be carried out as requested or of any matters significantly affecting the other auditors' work, which are of the principal auditors' concern. Similarly, the principal auditors should notify the other auditors of any matters which are discovered by the principal auditors and may considerably affect the financial statements of the subordinate units or other economic units audited by the other auditors.

The cooperation between auditors should be agreed upon by the authorities managing the audits.

Conclusions and elaboration of auditing reports

18. When the principal auditors conclude that the other auditors' materials cannot be used and they has not been able to perform additional audit procedures for the financial statements of the subordinate units and other economic units audited by the other auditors, if deeming that such would materially affect the audited financial statements, the principal auditors should express a partial acceptance opinion or an opinion to refuse to express an opinion because there is a limitation in the scope of the audit.

19. When the principal auditors have relied on the other auditors' opinions, their reports must clearly state this and specify the limitation of the financial statements audited by the other auditors.

20. Where the other auditors issue or plan to issue a modified auditing report, the principal auditors should consider the nature and significance of the modifications in relation to the financial statements audited by the principal auditors and determine whether their auditing reports need to be modified.

Responsibility of the principal auditors

21. The principal auditors must observe the principles and procedures prescribed in this standard when auditing the financial statements of the superior units, which include financial information of the subordinate units and other economic units, and must be responsible for the financial statement audit risks.-